Microsoft And How ItS A Monopoly Essay

Microsoft And How It?S A Monopoly Essay, Research Paper

Microsoft And How It?s A Monopoly

Since 1990, a battle has raged in United States courts between the United States

government and the Microsoft Corporation out of Redmond, Washington, headed by Bill

Gates. What is at stake is money. The federal government maintains that Microsoft?s

monopolistic practices are harmful to United States citizens, creating higher price and

potentially downgrading software quality, and should therefore be stopped. While

Microsoft and its supporter?s claims that they are not breaking any laws, and are just

doing good business.

Microsoft?s antitrust problems began for them in the early months of 1990, when

the Federal Trade Commission began investigating them for possible violations of the

Sherman and Clayton Antitrust Acts, which are designed to stop the formation of

monopolies. The investigation continued on for the next three years without resolve, until

Novell, maker of DR-DOS a competitor of Microsoft?s MS-DOS, filed a complaint with

the Competition Directorate of the European Commission in June of 1993. Doing this

stalled the investigations even more, until finally in August of 1993, the Federal Trade

Commission decided to hand the case over to the Department of Justice. The Department

of Justice moved quickly, with Anne K. Bingaman head of the Antitrust Division. The

case was finally ended on July 15, 1994, with Microsoft signing a consent to settlement.

The settlement focused on Microsoft?s selling practices with computer

manufacturers. Up until now, Microsoft would sell MS-DOS and Microsoft?s other

operating systems to original equipment manufacturers (OEM?s) at a 60% discount. Only

if OEM agreed to pay a royalty to Microsoft for every single computer that they sold

regardless if it had a Microsoft operating system installed on it or not. The number of

computers shipped with a Microsoft operating systems installed, and not for computers

that ran other operating systems.

Another practice that the Justice Department accused Microsoft of was that

Microsoft would specify a minimum number of operating systems that the retailer had to

buy. This would eliminate any chance for another operating system vendor to get their

system installed until the retailer had installed all of the Microsoft operating systems that

it had installed.

In addition to specifying a minimum number of operating systems that a vendor

had to buy, Microsoft also would sing contracts with the vendors for long periods of time

such as two or three years. In order for a new operating system to gain popularity, it

would have to do so quickly, in order to show potential buyers that it was worth

something. With Microsoft signing long term contracts, they eliminated the chance for a

new operating system to gain the popularity needed quickly.

Probably the second most controversial issue, besides the per processor

agreement, was Microsoft?s practice of tying. Tying was a practice in which Microsoft

would use their leverage in one market area, such as graphical user interfaces, to gain

leverage in another market. In the preceding example, Microsoft would use their

graphical user interface, window to sell their operating system, by offering discounts to

manufacturers that purchased both MS-DOS and Windows, and threatening to not sell

Windows to companies who did not also purchase DOS.

In the end, Microsoft decided to suck it up and sign the settlement agreement. In

signing the agreement. Microsoft did not actually have to admit to any of the alleged

charges, but were able to escape any type of formal punishment such as fines.

The settlement that Microsoft agreed to prohibits it, for the next six and a half

years from. Charging for its operating system on the basis of computer shipped rather

than on copies of MS-DOS shipped; Imposing minimum quantity commitments on

manufacturers; Signing contracts for greater than one year; Tying the sale of MS-DOS to

the sale of other Microsoft products. Although these penalties look to put an end to all of

Microsoft?s evil practices, some people think that they are not harsh enough.

On one side of the issue, there are the people who feel that Microsoft should be

left alone. I am one of these people, feeling that Microsoft does more good than bad, thus

not necessitating their breakup. I feel this way for many reasons, and until Microsoft does

something terribly wrong or illegal, my opinion will stay this way.

With Microsoft creating the standards for the rest of the computer industry, they

are able to create better standards and build them much faster than if an outside

organization or committees were to create them. With these standards set, other

companies area able to create their applications and other products that much faster, and

better, and thus the customers receive that much better of a product.

Take for instance the current effort to develop the Digital VideoDisc (DVD)

standard. DVD?s are compact discs that are capable of storing 4900 megabytes of

information as opposed to the 650 megabytes that can be stored on a CD-ROM disc now.

For this reason, DVD?s have enormous possibilities in both the computer industry

and in the movie industry. For about the last year, companies such as Sony, Mitsubishi,

and other prominent electronics manufacturers have been trying to decide on a set of

standards for the DVD format. Unfortunately, these standards meetings have gone

nowhere. Many companies have broken off in different directions, trying to develop their

own standards. In the end, there won?t be one, definite standard, but instead many

standards all of which are very different from one another. Consumers will be forced to

make a decision on which standard to choose, and if they pick the wrong one they could

be stuck down the road with a DVD player that is worthless. Had only one company set

the standards, much like Microsoft has in the software business, there wouldn?t be the

confusion that arose, and the consumers could sit back and relax, knowing that the DVD

format is secure and won?t be changed.

Another conclusion that many anti-Microsoft people and other people around that

world jump to is that the moment that we have a company, such as Microsoft, who is

very successful, they immediately think that there must be something wrong. They have

to be doing something illegal or immoral to have become this huge.

Contrary to popular belief, Microsoft has not gained its enormous popularity

through monopolistic and illegal measures, but instead through superior products. I feel

that people do have brains, and therefore have the capacity to make rational decisions

based on what they think is right. If people didn?t like the Microsoft operating systems,

there area bout a hundred other choices for operating systems, all of which have the

ability to replace Microsoft if the people wanted them. But they don?t the people for the

most part want Microsoft operating systems. For this reason, I don?t take the excuse that

Microsoft has gained their popularity through illegal measures. They simply created

products that the people liked and the people bought them.

On the other side of the issue are the people who believe that Microsoft is indeed

operating in a monopolistic manner and therefore, the government should intervene and

split Microsoft up. Those who are under the assumption that Microsoft should indeed be

split up believe that they should either be split into two separate companies. One deals

with operating systems and other dealing strictly with applications. The other group

believes that they government should further split Microsoft up into three divisions. One

company to create operating systems, one company to create office application, and one

company to create applications for the home. All of these people agree that Microsoft

should be split up, anyway possible.

The first thing those proponents of Microsoft being split up argue that although

Microsoft has created all kinds of standards for the computer software industry in today?s

world. Competing technologies can coexist in today?s society, without the need for

standards set by an external body or by a separate company such as Microsoft. Give the

example of the home video cassette industry of the late 1970s. The battle between the

VHS and Beta Video formats, VHS won not because it was a superior product, but

because it was more successfully marketed. Buying an operating system for a computer is

nothing at all like purchasing a VCR, because the operating system of a computer defined

that computer?s personality, whereas a VCR?s only function is to play movies.

The development of camcorders have been the introduction of many new formats

for video tapes that are all being used at once. VHS-C and 8mm formats all are coexisting

together in the camcorder market, showing that maybe in our society today we are not in

need of one standard. Maybe we can get along just as well with more than one standard.

Along the same lines there are quite a few other industries that can get along without one

standard. Take for instance the automobile industry. If you accepted the idea that one

standard was best for everyone involved, then you would never be tempted to purchase a

BMW, Lexus, Infiniti, Saab, or Porsche automobile. Due to the fact that these cars all

have less then one percent market share in the automobile industry and therefore will

never be standards.

Probably the biggest proponent of government intervention into the Microsoft

issue is Netscape Communications, based out of Mountain View, California. Netscape

has filed law suits accusing Microsoft of tying again. Microsoft is going through their

World Wide Web browser, Internet Explorer 3.0 into their operating system Windows 95.

Netscape is the maker of Netscape Navigator currently the most widely used Internet

browser on the market, and now facing some fierce competition from Microsoft?s

Internet Explorer. Netscape says that in addition to the browser, Microsoft was offering

Windows at a discount to original equipment manufacturers. Netscape complaint to

Microsoft is to feature Internet Explorer on the desktop of the computers that they

shipped, thus eliminating any competition for space on the desktop by rival companies

such as Netscape.

Another accusation that Netscape is making against Microsoft is that they are

doing the same type of things with the large internet service providers of the nation. They

are offering the large internet providers of the nation, such as Netcome and AT&T, space

on the Windows desktop, in return for the internet provider?s consent that they will not

offer Netscape Navigator, or any other competing internet software to their customers.

Netscape is becoming ever more concerned with Microsoft?s practice, because for

now they are going untouched by the government and it looks as if it will stay that way

for quite some time now. They are very much worried as they watch the numbers of users

switching to Microsoft?s browser, and the number of users using Navigator slipping.

Beside all of the accusations of monopolistic actions Netscape lay down on them,

Microsoft does seem to have one advantage when it comes to the browser wars. Their

new browser version 3.0, matches Netscape?s feature for feature with one added plus

Microsoft browser is frees. Whereas Netscape charges $50 and $1500 for their browser

and their web server.

With all the information that has been presented for both sides of the issue, you

are probably left in a daze, not knowing what to think. Is Microsoft good? Or is Microsoft

bad? Well, the answer is a little bit of both. Even though the Justice Department found

that Microsoft might be practicing some techniques that are less than ethical, they did not

find that Microsoft was breaking any anti-trust laws, nor did Microsoft actually admit to

the accusations when they signed the agreement. If anything them signing the agreement

was more of a sorry than an full fledged admission of guilt. Other people might disagree

with me, and there might be a lot of allegations floating around from different companies,

but the fact of the matter is plain and simple. Microsoft has not been formerly charged

and found guilty of any illegal practices pertaining to them being a monopoly. I believe

that the government should stay out of the affairs of the economy, rather than get tangled

up in a mess. Even if the government did get involved, due to the extremely fast paced

nature of the computer industry.


Work Cited

· Check, Dan. ?The Case Against Microsoft.?

· Maldoom, Daniel. ?The Microsoft Antitrust Case.?

· Maney, Kevin. Megamedia Shakeout. New York: John Wiley & Sons, Inc 1995.

· Schmidt, Eric. ?The Struggle for Bill Gate?s Soul.? US News and World Report.

Nov 25, 1996: 69-71


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